Arman Financial Services Limited — Q4 FY25 earnings call

Call held 30 May 2025

Management summary

Arman Financial reported a mixed Q4 FY25, with its MFI subsidiary, Namra Finance, experiencing a significant profit decline and a Q4 loss due to higher provisioning and rural stress. Consolidated AUM and PAT also saw declines. However, the standalone segments (MSME, micro-LAP, 2-Wheeler) showed strong growth and healthy asset quality. The company is implementing strategic changes, including separating credit and recovery functions and leveraging the Credit Guarantee Fund for Micro Unit (CGFMU), while maintaining a cautious outlook on MFI growth for FY26.

Highlights

  • Standalone AUM grew 25% YoY to ₹560 crores, demonstrating resilience.

  • Standalone disbursements in FY25 were ₹481 crores, up 20% YoY.

  • Standalone segment maintained healthy asset quality with a gross NPA of 3.38%.

  • MFI zero DPD collection efficiency improved to 98.8% in March 2025 from 97.3% in November 2024.

  • Consolidated Gross Total Income for FY25 was ₹730 crores, a 10% YoY growth.

  • Consolidated Net Income for FY25 reached ₹491 crores, a 24% YoY growth.

  • Consolidated PPOP for FY25 grew 14% YoY to ₹333 crores.

  • Consolidated Gross NPA improved to 3.37% in March 2025 from 4.13% in December 2024.

  • Company adopted an aggressive provisioning policy with cumulative provisions of ₹117 crores for FY25, covering 5.23% of consolidated AUM.

Concerns

  • Namra Finance (MFI subsidiary) reported a net profit of ₹7.8 crores in FY25, a significant decline from ₹138.3 crores in FY24.

  • Namra posted a marginal loss of ₹26 lakhs in Q4 FY25, compared to a profit of ₹38.8 crores in Q4 FY24.

  • Consolidated AUM declined by 15% from ₹2,639 crores to ₹2,245 crores YoY.

  • Namra's AUM declined by 23% from ₹2,193 crores to ₹1,686 crores YoY.

  • PAT for FY25 declined 70% YoY to ₹52 crores.

  • Overall OPEX is expected to increase by at least 1% due to new credit and recovery functions.

  • High attrition rate in the MFI book, at 62-63% last year, though a target of 40% is set for H1 FY26.

Key financials

  1. Consolidated AUM ₹2,245 Cr -15%YoY
  2. Gross Total Income FY25 ₹730 Cr +10%YoY
  3. Net Income FY25 ₹491 Cr +24%YoY
  4. PPOP FY25 ₹333 Cr +14%YoY
  5. PAT FY25 ₹52 Cr -70%YoY
  6. Consolidated Gross NPA 3.4%

What they filed

Q1 FY27: revenue up 33.8%, net profit up 400.0% against the same quarter last year.

₹ Cr · quarterly
Line itemQ2 FY25Q3 FY25Q4 FY25Q1 FY26Q2 FY26Q3 FY26Q4 FY26Q1 FY27
Revenue181 165 199 151 159 −12%160 −3%176 −12%202 +34%
Net profit15 -7 13 -15 8 −47%22 +414%41 +215%45 +400%
How to read this

₹ crore, as filed. The percentage beside a figure is the change against the same quarter a year earlier — never the quarter before, which would make every seasonal business look like it collapses and booms each year.

Segment breakdown

Share of AUM
₹2,246 Cr Total
  • Namra Finance (MFI) ₹1,686 Cr 75.1%
  • Standalone (MSME, micro-LAP, 2-Wheeler) ₹560 Cr 24.9%

Capital allocation

high confidence
  • M&A Distressed Assets Divestment · Closed · Consideration ₹[object Object] (mixed)

    Proactive write-offs and asset quality management.

    Sale of assets worth ₹185 crores (95% written off in FY25) for ₹36.5 crores (₹5.5 crores cash, ₹31 crores SR).

    For the MFI book, zero bucket collection efficiency for the quarter stood at about 98.5% and improved to 98.8% in March 2025. While still below our expectations, it does represent a meaningful improvement over Q3 FY '25. On a consolidated basis, collection efficiency for the quarter stood at 95.3 for all buckets combined. ... Additionally, what is also important here, Apoorva, is that we have already subscribed to the CGFMU. ... So the credit guarantees being offered through the NCGT by the Government of India itself for this kind of borrowers, 34% of the portfolio as of March is covered under the scheme. And it will continue to kind of increase. There the coverage literally is 75% of the default is covered by the CGFMU. Hence, I think from the provisional aspect, I think one can expect things to improve because of that. ... So, just to explain this, this has been completely written off book for FY '24-'25 accounting for about 95% of the Rs. 185 crores which have been assigned to the ARC. ... Rs. 185 crores, out of which about 95% was the write-off done in '24-'25 itself, and the balance the year earlier. So the valuation that we got was about Rs. 35.75 crores for this entire pool of assets. The transaction has happened on 28th of March, so Rs. 36.75 crores is the mark to market kind of value. ... So it's a 15:85, 85 is SR, 15 cash. ... Yes, Rs. 31 crores is the SR, Rs. 5.5 crores is ARC.
  • Liquidity Liquidity disclosed Surplus liquidity of ₹269 crores, supported by a healthy debt-equity ratio of 1.3x.
    Our consolidated balance sheet remains strong, supported by healthy debt equity ratio of 1.3x and surplus liquidity of Rs. 269 crores.

Guidance & targets

MFI Growth

  • Growth in FY26 MFI Growth · FY26 · Low confidence Not yet comfortable for growth
    Now, as far as your question about, has the situation improved enough where we are confident of growing well in FY '26? I would say, my honest answer would be no, it has not improved to a level where I would be comfortable. But we are not too far away. We will reassess and maybe ask me the same question next quarter.

    — Alok Patel

Standalone Growth

  • Growth in FY26 Standalone Growth · FY26 · Medium confidence Will continue to grow well
    Of course, our other books, which is MSME, 2-Wheeler and micro-LAP, which are now over 30% (Errata: Actual Number to be read as 25%) of the overall book, these we are quite confident, and we are also expanding in those segments with branch openings and other factors. And those will definitely continue to grow well in this financial year.

    — Alok Patel

MFI AUM Coverage

  • AUM covered under CGFMU MFI AUM Coverage · Ongoing · High confidence Will increase significantly quarter on quarter

    From 34% today

    As of March 2025, 34% of our MFI AUM is now covered under this scheme. And this will increase significantly quarter on quarter.

    — Alok Patel

New Credit Structure Implementation

  • Branches with new credit structure New Credit Structure Implementation · Q2 FY26 · High confidence Remaining branches by Q2 FY26

    From 140 branches today

    Currently, we have implemented the new credit structure in about 140 of our 391 branches, with the remaining branches to be implemented by Q2 of FY '26.

    — Alok Patel

Operating Cost

  • OPEX increase from new functions Operating Cost · Ongoing · High confidence At least 1% to OPEX overall
    So as far as operating cost is concerned, we expect this to add it, I mean, the new recovery function and credit function to add at least 1% to the OPEX overall, that was our initial estimate.

    — Alok Patel

  • Overall OPEX percentage Operating Cost · Future · Medium confidence Come down to about 5.5% or so
    It will come down to about 5.5% or so.

    — Alok Patel

MFI Attrition Rate

  • Attrition rate MFI Attrition Rate · H1 FY26 · High confidence Down to about 40%

    From 62-63% today

    So, yes, I think last year we ended at about 62% or 63%, which is overall it had reached all the way to like 68% I believe, so Q 4 was a lot better. But still it is very, very high. We need to get that number, so the target is to get that number down to about 40% in the first half of this year.

    — Alok Patel

MFI Portfolio

  • Portfolio size MFI Portfolio · Next couple of quarters · Medium confidence Maintain the portfolio
    And so, in this case we are at least trying to maintain the portfolio, at least for the next couple of quarters, and then we will concentrate on growth during Q3 and Q4.

    — Alok Patel

Provisions

  • Absolute provisions Provisions · Future · Medium confidence Will definitely come down
    No, I mean, so in absolute numbers you will see it definitely come down according to me.

    — Alok Patel

Credit Guarantee Fund Cost

  • Cost as % of portfolio Credit Guarantee Fund Cost · Per year · High confidence About 1% of portfolio outstanding
    So, it's about 1% of the portfolio outstanding of the custom per year. So that should come out to be about 1.6% or 1.75% for the life of the customer, the average loan tenor is two years only.

    — Alok Patel

Microfinance Profitability

  • Independent profitability of microfinance subsidiary Microfinance Profitability · By Q2 · Medium confidence Independently profitable
    Honestly, by Q2, we are expecting even micro to be independently profitable.

    — Alok Patel

What to watch in Q1 FY26

MFI growth comfort level

Next quarter
Current Not comfortable for growth yet
Target Reassessment for growth in FY26

Why it matters

Indicates when the company might resume growth in its core MFI segment.

Now, as far as your question about, has the situation improved enough where we are confident of growing well in FY '26? I would say, my honest answer would be no, it has not improved to a level where I would be comfortable. But we are not too far away. We will reassess and maybe ask me the same question next quarter.

Risks & concerns

  • Higher provisioning due to rural stress

    high

    The key driver behind Namra's performance was higher provisioning, largely due to ongoing stress in rural pockets.

    Management acknowledged

  • MFI sector deleveraging and slow growth normalization

    high

    Overall growth rate in MFI segment is unlikely to normalize until the sector deleverages and adapts to evolving dynamics.

    Management acknowledged

  • Elevated credit cost and conflict of interest

    high

    Decision to separate credit/recovery functions will result in higher operating cost, but is preferred over accepting elevated credit cost and addressing conflict of interest.

    Management acknowledged

  • High attrition rate in MFI book

    high

    Attrition rate was 62-63% last year, and until the credit cycle improves, it will be difficult to manage.

    Management acknowledged

  • Slow industry growth and disbursements in early FY26

    high

    April and May have been quite slow for the industry, with disbursements coming down quite a bit.

    Management acknowledged

Q&A highlights

5 direct
MFI growth outlook for FY26 Partial
Now, as far as your question about, has the situation improved enough where we are confident of growing well in FY '26? I would say, my honest answer would be no, it has not improved to a level where I would be comfortable. But we are not too far away. We will reassess and maybe ask me the same question next quarter.

Management indicates continued caution on MFI growth despite Q4 improvement, suggesting a prolonged period of consolidation for the sector.

Asked by Abhishek from AB Capital

Balancing asset quality and growth Direct
Well, I mean, growth is really not our priority at this point. As I said, we are in a kind of a situation right now where specifically about Arman, historically, whenever there is uncertainty in the market, we take a step back and kind of evaluate the situation and not really grow until we are comfortable with the asset quality.

Highlights the company's strategic shift to prioritize asset quality stabilization over aggressive growth in the current challenging MFI environment.

Asked by Apoorv Singh from Panchratna Investors

Impact of new credit structure on OPEX and attrition Direct
So as far as operating cost is concerned, we expect this to add it, I mean, the new recovery function and credit function to add at least 1% to the OPEX overall, that was our initial estimate. ... So, yes, I think last year we ended at about 62% or 63%, which is overall it had reached all the way to like 68% I believe, so Q 4 was a lot better. But still it is very, very high. We need to get that number, so the target is to get that number down to about 40% in the first half of this year.

Provides specific cost implications of the new credit model and reveals the high MFI attrition rate, indicating operational challenges.

Asked by Kartik Srinivas from Unifi Mutual Fund

ARC transaction details and accounting Direct
So, just to explain this, this has been completely written off book for FY '24-'25 accounting for about 95% of the Rs. 185 crores which have been assigned to the ARC. ... The transaction has happened on 28th of March, so Rs. 36.75 crores is the mark to market kind of value. ... So it's a 15:85, 85 is SR, 15 cash. ... Yes, Rs. 31 crores is the SR, Rs. 5.5 crores is ARC.

Clarifies the financial details and nature of the ARC transaction, including the split between cash and security receipts, and the extent of write-offs.

Asked by Amit Mantri from 2.2 Capital

Overall OPEX increase and stabilization Direct
See, so if you look at overall OPEX last year on average AUM, it will be higher than what you quoted. ... I mean, our number of people have increased by almost 25%. I need people to go and collect the money, which is a very human intensive kind of a job. ... It will come down to about 5.5% or so.

Explains the reasons for the significant OPEX increase (headcount, recovery efforts) and provides a target for its stabilization, crucial for future profitability.

Asked by Bharat from Dexter Capital

Microfinance subsidiary independent profitability Direct
Well, I mean, here's the thing. So, I mean, on a consol level, we are profitable even without the ARC and stuff. Honestly, by Q2, we are expecting even micro to be independently profitable.

Sets a clear short-term target for the MFI segment to return to independent profitability, which is a key turnaround indicator.

Asked by Santosh Jain

3 min read 7 chapters

Detailed narrative

Q4 FY25 and Full Year Performance Overview

Arman Financial Services Limited reported a challenging Q4 FY25, with its microfinance subsidiary, Namra Finance, posting a marginal loss of ₹26 lakhs compared to a profit of ₹38.8 crores in Q4 FY24. For the full year FY25, Namra's net profit significantly declined to ₹7.8 crores from ₹138.3 crores in FY24. Consolidated AUM saw a 15% decline YoY to ₹2,245 crores, and consolidated PAT for FY25 decreased by 70% YoY to ₹52 crores. Despite this, consolidated Gross Total Income for FY25 grew 10% YoY to ₹730 crores, and Net Income increased 24% YoY to ₹491 crores.

MFI Sector Challenges and Strategic Response

The MFI sector faced a challenging environment, primarily due to higher provisioning stemming from ongoing stress in rural pockets. Namra's AUM declined 23% YoY to ₹1,686 crores, and quarterly disbursements fell 26% YoY to ₹393 crores. In response, the company has completely separated credit and recovery functions from branch operations and is implementing a new credit structure in 140 of its 391 branches, with the remaining to be covered by Q2 FY26. Additionally, 34% of MFI AUM is now covered under the Credit Guarantee Fund for Micro Unit (CGFMU) scheme, which is expected to increase significantly.

Standalone Segment Resilience and Growth

In contrast to the MFI segment, the standalone businesses, including MSME, micro-LAP, and 2-Wheeler financing, demonstrated strong performance and resilience. Standalone AUM grew 25% YoY to ₹560 crores as of March 31, 2025. Disbursements in this segment for FY25 were ₹481 crores, marking a 20% YoY increase. This portfolio maintained a healthy asset quality with a gross NPA of 3.38% and zero DPD collection efficiency of 99.5% for MSME, and over 99% overall for the quarter.

Asset Quality Improvement and Provisioning Policy

The company's continuous focus on collection and underwriting processes led to an improvement in asset quality. Consolidated gross non-performing assets (GNPA) stood at 3.37% as of March 31, 2025, an improvement of 75 basis points from 4.13% in December 2024. Arman adopted an aggressive provisioning policy, with cumulative provisions for FY25 amounting to ₹117 crores, covering 5.23% of the consolidated AUM and 6.55% of the on-book AUM.

Operational Efficiency and Cost Implications

The strategic decision to separate credit and recovery functions, while aimed at improving asset quality, is expected to increase overall OPEX by at least 1%. This is partly due to increased headcount, including 160 BCMs and 600 recovery officers, and higher travel allowances. The company also noted a high attrition rate in the MFI book, which was 62-63% last year, with a target to reduce it to 40% in H1 FY26. Management believes these costs are necessary to ensure pristine asset quality.

ARC Transaction Details

In March 2025, Arman successfully completed an Asset Reconstruction Company (ARC) transaction. The company assigned a pool of assets worth ₹185 crores, of which approximately 95% had already been written off in FY25. The valuation received for this pool was ₹36.75 crores, with the proceeds structured as 15% cash (₹5.5 crores) and 85% Security Receipts (₹31 crores). This transaction is part of the company's proactive approach to managing asset quality.

Industry Outlook and Future Strategy

Management maintains a cautious near-term economic outlook, particularly for the MFI sector, and is prioritizing portfolio stabilization and asset quality over aggressive growth for the next couple of quarters. While the MFI segment is not expected to grow significantly in FY26, the standalone segments are projected to continue their growth trajectory. The company aims for its microfinance subsidiary to be independently profitable by Q2 FY26 and expects overall OPEX to normalize to around 5.5% in the future.

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